The Weekend Quiz – December 28-29, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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A response to Greg Mankiw – Part 2

In – A response to Greg Mankiw – Part 1 (December 23, 2019) – I provided the E-mail correspondence that preceded the publication of – A Skeptic’s Guide to Modern Monetary Theory (December 12, 2019) – by Greg Mankiw. In this blog post, I provide a response to the specific points made in that paper and conclude that if it aims to be a fair ‘guide’ to MMT (even from a critical perspective) then it fails badly. So let me explain why I hold that view. Today’s post is long and will take some reading. It could have been a lot longer. But I intend to take a break from writing the blog until next week (the Quiz will appear as usual though), so you have plenty of time to read this longer than usual post. Normally, I would have spread it out over 3 or 4 parts.

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A response to Greg Mankiw – Part 1

On October 2, 2019, I received an E-mail from Gregory Mankiw. It was sent to me, Randy Wray and Martin Watts and asked us some questions about our textbook – Macroeconomics – which had been published by leading textbook publisher Macmillan in March 2019. The book has been selling strongly with a third printing already in the pipeline and a second edition coming, hopefully, later next year. Macmillan also publish Greg Mankiw’s macroeconomics textbook, which has been the dominant teaching book in undergraduate programs. I will take you through the E-mail correspondence that followed because it puts in context what Greg Mankiw decided to do next. Instead of continuing the correspondence on academic terms, which was a reasonable expectation at the time, given the initial approach and our replies, he decided to submit a paper – A Skeptic’s Guide to Modern Monetary Theory (December 12, 2019) – to the American Economic Association meeting in early January, which purports to be a ‘guide’ (meaning in English – a framework to convey an appreciation of something) to Modern Monetary Theory (MMT). After his initial entreaty and our responses in good faith, Greg Mankiw clearly decided that engaging with us on the terms he initially set out was not going to be in his interests and thus took another tack, without any further consultation or reference to his initial contact with us. I wasn’t impressed with that strategy. I was less impressed with the ‘guide’ that emerged. It says very little about MMT. It demonstrates how hard it is for someone deeply locked into a dominant but failing paradigm to think outside the ‘box’ for a while and try to understand that the ideas of a new and emerging paradigm cannot be meaningfully reduced back into the conceptual framework of the failing paradigm that the contender is seeking to usurp. I guess his strategy is understandable – after all – our book is now a direct competitor for his textbook and offers a new approach that has much stronger empirical correspondence. In that context, it is in Greg Mankiw’s self interest to attack our book in any way he can. The problem is that attacks have to have some foundation to resonate. Greg Mankiw’s attack is so lateral that he would have been better to have remained silent. Sure, he is playing to the mainstream groupthink echo chamber. But the echoes will die eventually as more and more people realise the mainstream is in its last death throes. This is Part 1 of a two-part response to Greg Mankiw’s paper. In Part 1, we review the E-mail trail that started all this. In Part 2, I will discuss his response.

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Discredited academic dinosaurs continue to seek relevance

As many mainstream macroeconomics try to reinvent themselves after their reputations were trashed during and in the aftermath of the GFC, some are still trying to stay relevant by recycling the usual trash about deficits, public debt and bond yields that defines the New Keynesian orthodoxy in macroeconomics. That approach has been emphatically exposed as fake knowledge by the fact that none of the predictions that can be derived from that framework have proven to be accurate. On December 9, 2019, the UK Guardian took a rest from imputing anti-semitist motives to Jeremy Corbyn and published a sort of dinosauric-type article from Kenneth Rogoff – Public borrowing is cheap but ramping up debt is not without risk. Yes, the same character that claimed during the crisis that there was a public debt threshold of 90 per cent of GDP, beyond which, governments would face insolvency. When it was discovered the spreadsheet they had used to come up with that conclusion had been incompetently (or fraudulently) manipulated and that the actual data did not show anything of the sort, Rogoff should have slunked off and shut his mouth forever. But that is not the way these characters operate. Memory is short. Their position as an agent for their elites is well paid. And so they keep recycling the nonsense. Eventually, their influence will decline. But as Max Planck noted in 1948 “Die Wahrheit triumphiert nie, ihre Gegner sterben nur aus”, which has been reduced to ‘science advances one funeral at a time’, which is not a verbatim translation but an accurate depiction of how change is slow to come to the academy.

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The Weekend Quiz – November 30-December 1, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Impending British Labour loss may reflect their ambiguous Brexit position

Last week, the British Labour Party released its election – Manifesto 2019 – which they describe as “the most radical, hopeful, people-focused, fully-costed plan in modern times”. There is a lot to like about that Manifesto from a progressive perspective. However, in my mind, there were two unresolved tensions that I think damage the Party’s credibility. The first, is its, yes, continued embrace of neoliberal macroeconomic frames, epitomised by its so-called Fiscal Credibility Rule that has already had to be changed because so-called independent analysts agreed with my assessment that the manifesto and the ‘Rule’ were inconsistent. The second, is the Party’s position on Brexit, which I believe continues to hamper its chances of election and also brings into focus the inconsistencies in the Party’s stance and behaviour over the last 2 years. Elections are not won by counting votes up. Rather, they are won by winning seats, which means that votes are counted in specific constituencies (electorates). I have maintained the view that the Labour Party’s meandering position on Brexit, to satisfy the Europhile urban members, would damage them, given that the majority of their members of parliament were elected by Leave majority constituencies. Seats not votes win elections. It doesn’t matter if the majority of Labour voters are Remainers, if their are spatial disproportionalities in the vote spread. The latest YouGov MRP estimates of voter intention for the upcoming election indicate that my assessment may, in fact, turn out to be accurate.

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Interview with Asahi Shimbun in Tokyo – November 6, 2019

During my recent trip to Japan, where I made several presentations to various groups, including a large gathering in the Japanese Diet (Parliament), I received a lot of press interest, which is a good sign. I am slowly putting together the translated versions of some of the print media articles. Today, I provide a translation (with my annotations) of an interview I did with the centre-left newspaper – Asahi Shimbun – on November 6, 2019 in Tokyo. This is a daily newspaper and is one of the largest of five national newspapers in Japan. It has an interesting historical past but that is not the topic of the blog post today. The article opened with a statement introducing Modern Monetary Theory (MMT) and then followed a Q&A format. I have expanded the answers reported in the paper to reflect the actual answers I gave to the two journalists during the interview and to a wider press gathering at an official press conference the day before in Tokyo.

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The Weekend Quiz – November 9-10, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Leopards do not change their spots

Only a short blog post today as it is Wednesday. My father, in fact, used to say that ‘leopards do not change their spots’, when referring to people who in one period behaved one way and then when sprung would pretend they were reformed. I was thinking about that when I noted that the queue to the magical reinvention door is getting longer by the day. This is the process, whereby a person, who previously advocated neoliberal macroeconomic policy interventions from the sidelines (as an academic economist or media commentator) and/or executed them from a position of power (say, as a Treasurer or Minister of Finance), starts attacking present day governments, who inherited their own fiscal surplus obsessions, and are, like they did themselves, driving their economies into the ground as a result of the same obsessions. Who is in the spotlight today? None other than the former Australian Treasurer, Paul Keating who was reported in the press this morning (October 30, 2019) – Paul Keating slams Liberal party ‘surplus virus’ (paywall) – as being critical of the current government for keeping the “Australian economy ‘idling at the lights'” as a result of “running Australia’s budget like a ‘corner shop'”. He urged the government to stimulate the economy with fiscal policy. Now before we get too excited, and this applies to all the goons who come out claiming they wanted fiscal stimulus all along, these characters typically blow their cover and reveal their true DNA when they reflect on their own track records on the subject. But it is an interesting, if not amusing, pastime watching these characters try to revise their CVs to look like they ‘knew it all along’ as they try desperately to retain relevance and get on the right side of history. We are not that stupid though.

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The Weekend Quiz – October 19-20, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Apparently core MMT idea is now supported by the mainstream

It’s Wednesday and only a collection of snippets today. Today we saw some self-aggrandising hypocrisy with a short memory come out of the sewers, and a statement by a government denying that they are a “successful case of MMT”, an advertisement (call for help) and some music linked to a recent, rather significant death, when considered in the history of contemporary music. Pretty full day really.

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The Weekend Quiz – October 12-13, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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When old central bankers know what is wrong but can’t bring themselves to saying what is right

Last Friday (October 4, 2019), a group of former central bank governors and/or officials in Europe, issued a statement damming the conduct of the European Central Bank. You can read the full text at Bloomberg – Memorandum on ECB Monetary Policy by Issing, Stark, Schlesinger. The timing of the intervention is interesting given the change of boss at the ECB is imminent. As I explain in what follows, the Memorandum should be disregarded. Its central contentions are mostly correct but the alternative world it would have Europe follow would be a disaster for many of the Member States and the people that live within them. It would almost certainly result in the collapse of the monetary union – which would be a good outcome – in the face of massive income and job losses and the social and political instability that would follow – which would be a bad outcome. What it tells me is that the monetary union is a massive failure. It would be far better to dissolve it in an orderly manner to avoid those massive income and job losses and to support the restoration of full currency sovereignty and national central banks. That would be the sensible thing to do.

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The Weekend Quiz – October 5-6, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Leading indicators are suggesting recession

In the last two days, some major leading indicators have been released for the US and Europe, which have suggested the world is heading rather quickly for recession. It seems that the disruptions to global trade arising from the tariff war is impacting on US export orders rather significantly. The so-called ISM New Export Orders Index fell by 2.3 percentage points in September to a low of 41 per cent. The ISM reported that “The index had its lowest reading since March 2009 (39.4 percent)”. This is the third consecutive monthly fall (down from 50 per cent in June 2019). Across the Atlantic, the latest PMI for Germany reveals a deepening recession in its manufacturing sector, now recording index point outcomes as low as the readings during the GFC. Again, exports are being hit by China’s slowdown. However, while export sectors (for example, manufacturing) are in decline and will need the trade dispute settled quickly if they are to recover, the services sector in Japan, demonstrates the advantages of maintaining fiscal support for domestic demand. Japan’s service sector is growing despite its manufacturing sector declining in the face of the global downturn. The lesson is that policy makers have to abandon their reliance on monetary policy and, instead, embrace a new era of fiscal dominance. With revenue declining from exports, growth will rely more on domestic demand. If manufacturing is in decline and that downturn reverberates through the industry structure, then domestic demand will falter unless fiscal stimulus is introduced. It is not rocket science.

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Travelling all day today …

There will be no blog post today as I am travelling for the next 24 hours or so back from the US. It has been a very busy two weeks or so that has taken me to many cities and meetings with many different people. A lot of different agendas to absorb and think about. From West Africa to the struggles within the US, to the Eurozone and the chaos of Britain. But the commonality is a desire to understand MMT and apply it to better deal with the problems that face us and our planet. While I am flying I will not be attending to comments that need moderation. So it might be some time before you see your comment published (or not). I am now preparing for my next foray which will take me to Japan later this month.

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ECB confirms monetary policy has run its course – Part 2

This is Part 2 of my two-part commentary and analysis of the – Monetary policy decisions – by the ECB (September 12, 2019). In Part 1, I discussed the shifts in the deposit rate and the changes to the Targeted longer-term refinancing operations (TLTROs). In Part 2, I am focusing on the decision to introduce a two-tiered deposit rate on excess reserves, which is designed to reduce the costs of the penalty arising from the negative deposit rate regime that the ECB has had in place since June 2014. But the most important aspect of the ECB decision was not the monetary policy changes, which will have relatively minor impacts on the real Eurozone economy. The telling part of the whole episode was Mario Draghi’s comments on fiscal dominance. We are entering a new era where the neoliberal obsession with so-called monetary policy reliance is becoming increasingly discredited and exposed by the evidence base. Fiscal dominance is approaching. And the only body of work that has consistently argued for this approach to macroeconomic policy making has been Modern Monetary Theory (MMT) despite what the mainstream economists who are now starting to realise their reputations are in tatters might say.

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ECB confirms monetary policy has run its course – Part 1

I will have little time to publish blog posts in the next two weeks. But as I travel around I have to sit in trains, planes and cars and that is when I tend to write when I am away from my desk(s). Today, I am in Maastricht – after travelling by train from Paris. I have two events – one on framing and language and the other on Reclaiming the State and Modern Monetary Theory (MMT) basics. Then I am heading to Berlin for a talk at PIMCO and on Friday I am presenting an MMT workshop at the European Central Bank. Last week, the ECB made its next move, the last one for current President Mario Draghi. It will also lock in Madame Lagarde for a time and represents a rather overt statement about the failure of mainstream macroeconomics. While the mechanics of their various policy decisions are interesting and are worth discussing (albeit briefly) the overall optics were more powerful. The ECB has now joined a host of central bankers around the world in, more or less, admitting that monetary policy has run its course and is being pushed into ever more desperate configurations. At the same time, the corollary is that fiscal policy makers are failing in their responsibility to use policy to avoid stagnation and elevated levels of unemployment. Despite rather significant monetary policy gymnastics, aimed at stimulating economic growth and lifting inflation rates, central bankers have largely failed. They have failed because they are wedded to mainstream theory. Fiscal policy makers are constrained by an austerity-biased ideology and/or voluntary institutional machinery that has been created to stifle fiscal initiative (destructive fiscal rules). The cracks are widening. We are approaching the period of fiscal policy dominance – finally! This is Part 1 of a two-part series on this topic. Part 2 will follow tomorrow.

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The Weekend Quiz – September 14-15, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The Weekend Quiz – September 7-8, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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